Siemens Written Submission to the Transport Select Committee on UK

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Siemens Written Submission to the Transport Select Committee on UK Written evidence from Siemens plc (RSP 08) EXECUTIVE SUMMARY Siemens plc is a major UK employer of 16,000 people. One of its key business activities is rolling stock supply and maintenance. Siemens plc, along with a number of other rolling stock suppliers all with international parent companies, has participated in various procurement exercises in the UK rail market over the past 10 years. As is the nature of competition, Siemens plc has won certain tenders and not others. Siemens plc now has over 300 Siemens trains (1500 rail vehicles) in service with various operators. This written submission sets out Siemens plc’s position on a number of key points in relation to UK Rolling Stock procurement (excluding the London Underground market) but also various issues that have been raised since the selection of Siemens plc by the Department for Transport (DfT) as the preferred bidder for the Thameslink Rolling Stock Procurement Project (TRSP). In summary: The opening up of competition in the UK rail market post privatisation has resulted in INTRODUCTION 1. Siemens plc has been present in the UK for 168 years, and is now a major UK-wide employer. We employ 16,000 people in the UK (largely UK nationals), of whom around half are involved in manufacturing and engineering across our key Sectors of Energy, Healthcare and Industry (a fourth Sector, covering Infrastructure and Cities, will be established on 1st October 2011). The company has an annual turnover of £4.1bn in the UK, and contributes significantly in direct and indirect taxes to the UK Exchequer. Siemens annual purchase volume in the UK is in the order of Euro 1.5bn, which in turn secures many thousands of jobs in the supply chain. 2. Siemens plc is committed to the UK manufacturing sector and currently has 13 manufacturing sites in the UK, involving a range of technologies. For example: a. 15,000 traffic signals for the UK and 28 international markets are manufactured at Siemens Traffic Solutions in Poole, officially ‘Britain’s best factory’ (Works Management / Manufacturing Institute Awards 2010). b. Industrial gas turbines for power plants are manufactured at Siemens Industrial Turbomachinery in Lincoln. 90% of the turbines are exported, with 3,690 engines sold to date. c. Siemens MRI scanners and more than a third of all MRI scanners installed in hospitals around the world have at their heart a superconducting magnet designed and manufactured by Siemens Magnet Technology in Eynsham, Oxfordshire. d. High efficiency motor drives exported to 78 countries globally are made by Siemens Standard Drives in Congleton. More than 1.3 million drives are produced per year, saving customers 4 million tonnes of CO2 per year. 3. Siemens plc has a strong track record of investment in the UK. For example, the company has recently announced: a. Inward investment of around £80m in Hull establishing a wind turbine manufacturing plant to capitalise on the growing market for offshore energy. The factory will create up to 700 new direct jobs as well as additional employment in the supply chain in the Humber region. b. £30m investment in the Siemens Urban Sustainability Centre in London’s Docklands, demonstrating Siemens’ commitment to creating sustainable cities. The centre will attract 100,000 visitors every year, from city mayors, global experts, city planners and officials to members of the local community, school children and post graduate students. c. The creation of up to 340 new jobs at a new Renewable Energy Engineering Centre being built in Manchester. d. £8m at Siemens’ Newcastle site, where Siemens will officially open a Fossil and Renewable Energy Training facility in September this year, a key investment to address the skills requirement in the North East of England. 4. As a result of our existing and planned investments in the UK economy, Siemens is deeply committed to the development of UK jobs and skills. As an example, Siemens is this year recruiting over 100 apprentices across its business in this country. UK ROLLING STOCK MARKET 5. The Rolling Stock market in the UK has a number of major UK based suppliers with international parents, they are: a. Siemens plc with its parent based in Germany b. Bombardier Transportation UK Limited with its parent based in Canada and headquarters in Germany c. Hitachi Europe Limited with its parent based in Japan d. Alstom Transport with its parent based in France 6. Based on information available to Siemens, since privatisation and the opening up of the UK market to competition, the commuter rail market share of Diesel Multiple Unit (DMU) vehicles and Electric Multiple Unit (EMU) vehicles between the various rolling stock suppliers is shown in the following graphs: Electric Multiple Units 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 total alstom bombardierCAF hitachi siemens Commuters - EMU since Privatisation Quantity of Individual Vehicles - March 2010 Cars 3,689 304 2,020 0 0 1,365 % Share 100% 8% 55% 0% 0% 37% Diesel Multiple Units 900 800 700 600 500 400 300 200 100 0 total alstom bombardierCAF hitachi siemens Commuters - DMU since Privatisation Quantity of Individual Vehicles Cars 849 70 557 69 0 153 Share 100% 8% 66% 8% 0% 18% 7. Following privatisation of the Railway industry in the mid 1990s the management of procurement of Rolling Stock has predominantly been undertaken by either Train Operating Companies directly or via their appointed procurement consultants or by the DfT. a) Train Operating Companies directly or via their appointed procurement consultants: i) In summary, procurement is conducted in accordance with European Procurement Law. It involves the issue of an OJEU Notice (call for competition) by the procuring entity inviting companies interested in Rolling Stock provision (and separately financing) to prequalify to participate. ii) The interested parties then submit pre-qualifications to the procuring entity (or in some cases using automatic pre-qualification systems for example Link-Up) and a short list of prequalified bidders is developed by the procuring entity. iii) An Invitation to tender is issued to the pre-qualified tenderers specifying the scope of the procurement together with the relevant evaluation criteria that will be used to assess the tender submissions – these are often very detailed documents. iv) Suppliers then develop their tender strategies by focussing on what the procuring entity is looking to buy and how the bids would be evaluated – this is a critically important element for a supplier in developing a winning bid. To give some examples: - If the number of seats is weighted highly in the evaluation criteria, the supplier would look carefully at the layout of the train and the location of equipment cubicles to ensure that they maximise furnishable space; - If ‘deliverability’ is weighted highly in the evaluation criteria, the supplier would put particular emphasis on how they will demonstrate to the buyer that what they are offering will be delivered in accordance with the contract; - If the whole lifecycle cost is highly weighted in the evaluation criteria, this could drive the supplier to maximise the period between maintenance, drive a reduced spares consumption rate or reduce operating costs such as electricity consumption. v) In parallel the procuring entity would normally select a financier to fund the purchase for example a Rolling Stock Leasing Company. vi) Following the selection of the successful supplier, the required stand still letters are issued in accordance with EU procurement law and after the standstill period the contract between the supplier and the procuring entity can be concluded. vii) The diagram below shows a typical contractual structure with the relevant parties. Department for Transport S54 Trains Dir A RSLA Train Owner Train Operator MSA TSA Name ROSCO S54 TSA Train Manufacturer & Maintainer (Supplier) Key: S54 – Section 54 undertaking by government for a guaranteed usage period to encourage investment in the Railways; Dir A – Direct Agreement enabling step in rights in certain circumstances; TSA – Train Service Agreement; MSA – Manufacturing Supply Agreement; RSLA – Rolling Stock lease Agreement viii) Examples of procurement contracts that have been conducted since privatisation are shown in the table below. The participants and the successful bidders are shown, with the successful bidder is underlined. South Eastern = Bombardier / Alstom c2c 1 = Bombardier / Alstom c2c 2 = Bombardier / Siemens Great Eastern (NXEA) = Siemens / Bombardier / Alstom South West Trains = Siemens / Bombardier / Alstom ScotRail 1 = Alstom / Bombardier / Siemens South Eastern Metro = Bombardier / Hitachi Southern 1 = Bombardier / Siemens / Alstom Southern 2 = Bombardier TransPennine Express = Siemens / Bombardier / Alstom London Midland 1 = Siemens / Hitachi London Midland 2 = Siemens / Hitachi / Bombardier ScotRail 2 = Siemens / Bombardier Stansted Express = Bombardier / Siemens London Overground = Bombardier / Siemens / Hitachi b) Department for Transport i. The DfT also procures Rolling Stock, following much the same process as outlined above, but it tends to do this for projects with much more of a National Strategic dimension for example the proposed Diesel Multiple Unit tender (that was subsequently cancelled due to the electrification of the network), the Intercity Express Programme and Thameslink. ii. In both the Intercity Express Programme and Thameslink, bidders were asked to commit long-term equity and arrange debt from numerous sources in the market to fund the deal. iii. An
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